With end-of-year celebrations fast approaching, there’s plenty for businesses to organise – venues, food, drinks, gifts, DJs and possibly a regrettable karaoke moment.

But there’s one more item that shouldn’t be left off the planning list:

FBT. Yes, even Christmas has tax rules.

Fringe Benefits Tax (FBT) applies to certain non-cash benefits provided to employees (and their associates, such as partners). The current FBT rate is 47%, so understanding the rules before the party starts is an easy way to avoid an unexpected financial hangover next April.

The good news? With the right approach, it’s often possible to celebrate generously without triggering FBT. Let’s break it down.

What is FBT and why does it matter at Christmas?

FBT applies to certain benefits provided to employees outside ordinary salary and wages – and Christmas is prime time for those benefits: functions, gifts, drinks, entertainment, taxis home and so on.

Different rules apply depending on:

how the benefit is provided,
where it’s provided,
who receives it, and
whether the cost per person is under $300.

But don’t worry – here are the practical takeaways.

The Actual Method: where the exemptions live

If you use the actual method to value meal entertainment, several exemptions may apply:

✔ Minor benefit exemption

If the cost of the benefit is less than $300 GST-inclusive, and it is infrequent or irregular, it may be exempt from FBT. This applies to:

Christmas lunches,
gifts,
drink tabs,
Kris Kringle surprises,
and general merriment (within limits).

✔ On-premises exemption

Food and drink consumed on your business premises on a working day is generally exempt. So the office Christmas lunch can be tax-free – bonus points if you don’t have to book a venue.

✔ Taxi rides

A taxi home after an on-premises event can also be exempt. Santa approves.

Important for the Actual Method:

To claim exemptions under this method, you need to keep records of who attended. A simple attendee list is enough – but without it, minor benefit exemptions may not apply.

The 50/50 Method: simple but not always the winner

The 50/50 Method is straightforward

Add up all meal entertainment for the year,
Apply FBT to 50% of it.

No minor benefit exemption. No taxi exemption. No on-premises exemption.

It reduces record-keeping – but can also increase tax. Useful? Yes. Festive? Not always.

Gifts: the rules that surprise everyone

Not all gifts are created equal when it comes to FBT.

Gifts can be exempt

If they are under $300 and not entertainment in nature, they may be FBT-free. Examples:

hampers,
gift boxes,
wine,
gadgets,
movie vouchers.

Restaurant gift cards ≠ exempt

Restaurant and dining vouchers are considered entertainment. These benefits generally:

attract FBT (unless under another exemption),
are only deductible if subject to FBT,
and typically don’t attract GST credits.

Rule of thumb:

If you can unwrap it, it’s usually fine. If you need a booking, be careful.

What’s not meal entertainment? (Surprisingly)

Hiring a band, DJ or entertainer at the Christmas party is not meal entertainment – it is recreational expenditure. If the cost per employee is below $300, the minor benefit exemption may apply.

(Yes, the tax law officially distinguishes between music and food. Welcome to the world of FBT.)

Tax deductibility and GST treatment

Your FBT valuation method also determines your tax deduction and GST position.

Under the Actual Method:

If a benefit is exempt from FBT (e.g., minor benefit), it is generally not deductible and no GST credits are claimable.
Entertainment for clients or suppliers is generally not deductible and attracts no GST credits.
Only benefits subject to FBT are deductible.

Under the 50/50 Method:

50% of the cost is deductible,
and 50% of the GST credits can be claimed.

Records to keep

To rely on exemptions and the actual method, employers need to maintain simple but sufficient records, such as:

attendee lists,
invoices or receipts,
confirmation of cost per head.

This is a common weak spot for employers and the most preventable source of FBT exposure.

What this means for employers

The festive season is a great opportunity to reward your team and acknowledge their work. It also creates a peak period for fringe benefits – meaning a peak period for FBT mistakes.

The real message is:

a little planning now can save a 47% surprise later.

Choosing the right valuation method, keeping simple records and understanding when exemptions apply can significantly reduce or eliminate FBT in most cases.

Final thoughts

Christmas parties and staff gifts don’t need to become an FBT minefield. With the right structure in place and an understanding of the rules, employers can provide benefits to staff, celebrate the year and remain compliant.

If you have questions or need support in planning your year-end celebrations in a tax-efficient way, our team is here to help you navigate the rules and make informed decisions.

If you have any questions, please contact Resolve on 02 6147 6741 or via hello@resolve-advisory.com.au.

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FBT and the Festive Season: What Employers Need to Know Before the Christmas Party